Crude Rebounds as Supply Risks Help Offset Trade War Concerns

(Bloomberg) -- Brent crude rebounded from last week's rout as the outlook for supply disruptions from Iran and Libya help offset concerns that a U.S.-China trade war will sap demand.

Futures rose 2.1% in London, following a 4.9% slump in oil's worst week this year. OPEC meets next month in Vienna to decide on the future of production cuts amid rising tensions between the U.S. and Iran that could endanger a region that’s the source of much of the world’s oil supply. In Libya, strongman Khalifa Haftar said over the weekend that his offensive on Tripoli won’t stop until the country’s militias have been disarmed, risking a renewed blow to the country’s recovering oil output.

“This is a bit of a bounce from the very sharp decline last week,” Bart Melek, head of commodity strategy at Toronto’s TD Securities, said by phone. “OPEC continues to keep supply tight. We will no doubt have geopolitical risk with us as it pertains to Iran and Libya.”

Following the escalating trade dispute that rattled markets last week, U.S. President Donald Trump said Monday that the country isn’t ready to make a deal with China. A drop in Chinese industrial profits for April provided more evidence of the trade war’s impact. Trump also said that he isn’t pursuing regime change in Iran but aims to keep it from developing nuclear weapons, an apparent effort to tamp down tensions.

Brent crude for July rose $1.42 to $70.11 a barrel on London’s ICE Europe Futures. West Texas Intermediate crude gained 61 cents to $59.24 on the New York Mercantile Exchange. It was a public holiday in both the U.S. and the U.K.

In the U.S., explorers reduced drilling to the lowest level in more than a year last week. The number of working rigs targeting oil fell for the fifth time in six weeks, which “isn’t particularly robust,” Melek said. “We have been trending lower since, we can say, November.”

But the impact of the lower rig count is likely to be temporary, and oil prices will probably stay under pressure this week, said Jeffrey Halley, a senior market analyst at Oanda Asia Pacific in Singapore.

--With assistance from Heesu Lee and Saket Sundria.

To contact the reporter on this story: Robert Tuttle in Calgary at rtuttle@bloomberg.net

To contact the editors responsible for this story: Nayla Razzouk at nrazzouk2@bloomberg.net, Carlos Caminada

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